Circular

Deficiencies in Mandatory Insurance for Insurance Intermediaries

CIRCULAR: No. 3/2016 DATE: 27 January 2016 APPLIES TO: Insurance Intermediaries FINANS TILSYNET P.O. Box 1187 Sentrum 0107 Oslo

Deficiencies in Mandatory Insurance for Insurance Intermediaries 2 | Finans Tilsynet Contents 1 Introduction 3 2 Observed Deficiencies in Insurance Certificates and Liability Confirmation Letters 3 2.1 Reference to Legislation and Regulations................................................................................... 3 2.2 Requirements for Insurance Amounts ...................................................................................... 3 2.3 Joint Insurances...................................................................................................... 4 2.4 Annual Submission .................................................................................................. 4 2.5 Specification of Insurer ................................................................................... 4 2.6 Liability Confirmation Letter from the Insurance Company ........................................ 5

Deficiencies in Mandatory Insurance for Insurance Intermediaries Finans Tilsynet | 3 1 Introduction This circular contains a summary of observed deficiencies in submitted insurance certificates and liability confirmation letters for insurance intermediary companies. The purpose of the circular is to ensure that the companies' liability insurance and fidelity insurance comply with the Insurance Intermediation Act. All insurance intermediary companies must hold liability insurance. Those holding client funds must additionally hold fidelity insurance. Insurance agency companies do not require their own insurance if the insurance company with which the agency company has an agreement confirms that it covers the liability for compensation. The Financial Supervisory Authority sets specific requirements for the content of the certificate or confirmation letter to ensure compliance with the law. From 2016 onwards, insurance certificates and liability confirmation letters must be submitted via Altinn as an attachment to form KRT-1027. The company must confirm in the form that the insurance or confirmation letter meets the content requirements. The form cannot be submitted until the company has reviewed all control points and confirmed they are in order.

2 Observed Deficiencies in Insurance Certificates and Liability Confirmation Letters 2.1 Reference to Legislation and Regulations The Financial Supervisory Authority has observed that:

• Insurance certificates lack references.
• The references are provided only to individual sections.
• In some cases, only the provision defining insurance intermediation in Section 1-2 of the Insurance Intermediation Act is cited. The insurance certificate must explicitly state that the insurance coverage complies with the Insurance Intermediation Act and the Insurance Intermediation Regulations. It must refer to the entirety of Chapter 4 of the Act and Chapter 2 of the Regulations, or alternatively the entirety of the Act and the Regulations. For agency companies, a reference to Section 7-5 of the Act is sufficient. The fidelity insurance must also include references to the legislation and regulations.

2.2 Requirements for Insurance Amounts The Financial Supervisory Authority has observed that:

• The insurance amount in Norwegian kroner is too low due to an increase in the euro exchange rate.
• Insurance amounts are too low because the company has not adjusted the amounts when the minimum amounts in the regulations were updated.
• The fidelity insurance amount is not adjusted upon renewal even though the client funds in the account have increased significantly during the year. Insurance intermediary companies must increase the insurance amounts at the first main due date following a change to the amounts in the regulations. If the insurance amounts are stated in a currency other than the euro, the company should ensure a safety margin is included for exchange rate fluctuations. Should exchange rate changes cause the insurance amount to become too low, it must be increased immediately.

2.3 Joint Insurances The Financial Supervisory Authority has observed that:

• Multiple companies are listed under "Insured" in the certificate without the insurance amount being sufficient relative to the number of companies.
• In some cases, additional text appears alongside the insurance intermediary company's name under "Insured". This may read "Approved insurance agents in the Financial Supervisory Authority's register". An insurance intermediary company may hold joint insurance with other companies. Sub-agents are covered by the main agent's insurance unless the sub-agent has its own insurance. The main agent must have procedures ensuring that insurance is taken out and renewed in accordance with the law's requirements. If sub-agents are covered by the main agent's insurance, the total number of employed intermediaries must be taken into account when calculating the insurance amount. In the case of joint insurance, it is important that all insurance intermediary companies covered by the insurance can be clearly identified by company name and organization number. Sub-agents must not be listed in the insurance certificate. For all other insurance intermediary companies, a joint insurance must have separate insurance amounts for each company. Each individual insurance amount must meet the requirement. Another way to achieve this is to have one insurance amount per claim event (which meets the requirement), but without any limits on total payouts under the insurance.

2.4 Annual Submission The Financial Supervisory Authority has observed that:

• Insurance certificates are submitted after the insurance period has expired.
• Insurance certificates are submitted where the insurance period expires before the end of the year. A valid insurance certificate or liability confirmation letter must be submitted to the Financial Supervisory Authority annually within one month after renewal. This applies to insurance intermediary companies registered in the Financial Supervisory Authority's concession register.

2.5 Specification of Insurer The Financial Supervisory Authority has observed that:

• The insurance company's name is missing from the insurance certificate.
• Instead of the insurance company's name, the insurance intermediary used is listed. The insurance must be taken out with an insurance company that has its head office in the EEA area. The insurance company's name must be stated in the insurance certificate.

2.6 Liability Confirmation Letter from the Insurance Company The Financial Supervisory Authority has observed that:

• Insurance agency companies submit a multi-year agreement or confirmation letter.
• The liability confirmation letter lacks references to legislation and regulations.
• The liability confirmation letter is not issued by the insurance company. Agency companies that do not take out their own insurance must annually submit a liability confirmation letter from the insurance company/companies they represent. The confirmation letter must be dated and signed by the insurance company. It must contain a reference stating that the insurance company has undertaken to cover liability for compensation in accordance with Section 7-5 of the Act and the entirety of Chapter 2 of the Regulations, or the entirety of the Act and the Regulations.

For the Financial Supervisory Authority Runa K. Sæther Section Manager Hege M. Bogstrand Senior Advisor Contact Person: Hege M. Bogstrand Hege.M.Bogstrand@Finanstilsynet.no Tel. 22 93 99 72

FINANS TILSYNET P.O. Box 1187 Sentrum 0107 Oslo POST@FINANSTILSYNET.NO WWW.FINANSTILSYNET.NO